Investing in Ecologically-Minded Alternatives

There's more to eco-investing than solar panels and wind turbines.

By SMART Expo, May 9 2019

Take a quick look around and you’ll notice the world has changed—or is changing—drastically and at speed. Aside from obvious indicators such as new buildings, gorier movies and taller high school kids, attitudes among the average consumer have shifted over the last two decades. And it’s not always millennials at the forefront of that change. Language has changed, religious, sexual and racial tolerance is rising (despite what a vocal minority want us to think), and overt, egregious consumption is becoming gauche. However, those affluent enough to afford an electric or hybrid car are more often turning towards that option. It’s a sign of environmental times.

And despite the potential for donor fatigue and fatalism about our collective ecological future, choices that favour sustainability and environmental responsibility are frequently becoming the norm for consumers—including investors.

Defining ‘Ecological’
Real estate and stocks are unlikely to go out of style as investments, but ecologically minded alternatives within those assets are increasingly viable. Though slapping a “green” label on something doesn’t make it so, green investing—or more commonly, eco-investing—very simply put is the policy of investing in assets that provide environmentally responsible products or practices. Contrary to popular belief, eco-investing isn’t just about renewable energies either, and more crucially, it’s not going anywhere.

“Environmental responsibility is a global trend that has gained irreversible momentum,” said CNBC back in 2012. “According to a recent Harvard Business Review sustainability study, over the next two decades, companies demonstrating a commitment to environmental responsibility will have a superior record in terms of performance, specifically because they will be prepared against regulatory roller coasters and will be able to seamlessly adapt to legislative changes and technical requirements.” Careless polluters and companies with large carbon footprints are becoming the tobacco of investment assets. More to the point, “an eco-investment would be best described as an investment in the future sustainability of the world’s natural resources,” says Gerard McGuirk, sales director, Hong Kong at Asia Plantation Capital (APC).

As eco-investment grows, the types of investment expand and can include companies that supported biofuels, green building (supplying energy efficient and recycled materials and so on) and lifestyle products (organic farming, green household products, and cosmetics). The Global Sustainable Investment Alliance’s (GSIA) 2016 review stated over US$22 trillion worth of eco-investments were professionally managed that year, a 25% jump from 2014, with Asia (except Japan) posting 15.7% growth in the sector, though it still represents less than 1% of total global eco-investment asset values.

Clean Returns
So where does that leave Asian investors? Any investor with a reputable financial manager can find ways to experiment with eco-investments (not to be confused with ethical investments, which often incorporate moral or socially responsible criteria). One of the region’s fastest emerging “products” is McGuirk’s APC, an asset that slots nicely into the eco-conscious lifestyle sector.

“Asia Plantation Capital owns and manages various plantations throughout Southeast Asia and offers a hands-off opportunity to own Aquilaria trees, which, when injured, produce the agarwood from which you can produce oud oil,” explains McGuirk. “By buying the actual trees, you are owning a real asset as opposed to investing in the markets which are non-tangible. Forestry is a tangible product which can be seen and touched and isn’t affected by normal investment markets.” At the end of 2018, agarwood oil from Southeast Asia was priced anywhere from US$300 to $550 per tola—or roughly US$25 to $46 per gram—according to Sustainable Asset Management (SAM). The dark, resinous oud oil has a distinct fragrance and is popular in essential oils, therapeutic medicines, aromatherapy and perfumes. It is the key ingredient in Oud Royal by Giorgio Armani and Tom Ford’s Oud Wood.

There’s more to APC than oud oil though. Other sustainable forestry products include bamboo, teak and vetiver, an absorbent Indian grass used in farming and in skin care products and perfumes. Investors see returns by purchasing, for example, 100 Aquilaria saplings at APC’s new Sarawak plantation and letting them mature over seven years. When ready, “the trees are then harvested and the oud extracted from the agarwood. The oil is then sold for not less than US$280 per tola (as per contract). If the trees are inoculated for agarwood chips or powder, the inoculation period is an additional four years and then they can sell at no less than US$55 per kilogram,” McGuirk explains. One kilogram is equivalent to approximately 85 tola.

Aside from the simple shift to more sustainable living and environmental awareness among the public (as well as investors), McGuirk believes new perspectives on what makes for a savvy investment is putting assets like APC on more and more investor radars. “I think people are becoming more aware of various opportunities, and with the world’s political uncertainty, it makes more sense to own real assets,” theorises McGuirk. “Forestry, done the correct sustainable way, helps the planet, helps nature and is something that the family can benefit from in everyday use. Forestry converts carbon to oxygen and are the lungs of the world.” APC’s entry point also makes it appealing to first-time investors or those without several million dollars to burn on a flat down payment—but it isn’t for the impatient. “Yes, it ticks many [entry-level] boxes,” finishes McGuirk, “and as long as people understand that this is not a quick buck money-spinner, then it’s very good as a medium-term option.”